In this paper we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the default episodes last 5 quarters or less and that larger firms have shorter default periods. Most firms continue to have access to credit immediately after default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and have experienced longer and more severe defaults.
{"title":"What Happens after Default? Stylized Facts on Access to Credit","authors":"Diana Bonfim, Daniel A. Dias, C. Richmond","doi":"10.2139/ssrn.1752168","DOIUrl":"https://doi.org/10.2139/ssrn.1752168","url":null,"abstract":"In this paper we investigate what happens to firms after they default on their bank loans. We approach this question by establishing a set of stylized facts concerning the evolution of default and its resolution, focusing on access to credit after default. Using a unique dataset from Portugal, we observe that half of the default episodes last 5 quarters or less and that larger firms have shorter default periods. Most firms continue to have access to credit immediately after default, though only a minority has access to new loans. Firms have more difficulties in regaining access to credit if they are small, if their default was long and severe, if they borrow from only one bank or if they default with their main lender. Further, half of the defaulting firms record another default in the future. We observe that firms with repeated defaults are, on average, smaller and have experienced longer and more severe defaults.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115229194","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and allowance price are generated endogenously and are interdependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value rejects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument, which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented.
{"title":"Pollution Permits, Strategic Trading and Dynamic Technology Adoption","authors":"Santiago Moreno-Bromberg, Luca Taschini","doi":"10.2139/ssrn.1786679","DOIUrl":"https://doi.org/10.2139/ssrn.1786679","url":null,"abstract":"This paper analyzes the dynamic incentives for technology adoption under a transferable permits system, which allows for strategic trading on the permit market. Initially, firms can invest both in low-emitting production technologies and trade permits. In the model, technology adoption and allowance price are generated endogenously and are interdependent. It is shown that the non-cooperative permit trading game possesses a pure-strategy Nash equilibrium, where the allowance value rejects the level of uncovered pollution (demand), the level of unused allowances (supply), and the technological status. These conditions are also satisfied when a price support instrument, which is contingent on the adoption of the new technology, is introduced. Numerical investigation confirms that this policy generates a floating price floor for the allowances, and it restores the dynamic incentives to invest. Given that this policy comes at a cost, a criterion for the selection of a self-financing policy (based on convex risk measures) is proposed and implemented.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"57 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133136714","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines the effects of strategic alliances on non-financial firms’ bank loan financing. We construct several measures to capture firms’ alliance activities using the frequency of alliance activities, the prominence of the alliance partner and the relative networking position in the overall alliance network. We find that firms with active alliance involvement experience a lower cost of debt from banks. We also document that allying with a prestigious partner (ie S&P 500 firms) can provide an endorsement effect and benefit the borrowers by reducing the price of bank loans. Moreover, a borrowing firm positioned at the centre of an alliance network enjoys a lower cost of bank loans. Finally, we find that borrowing firms with alliance experience are less likely to use collateral and covenants in their loan contracts.
{"title":"Product Market Relationships and Cost of Bank Loans: Evidence from Strategic Alliances","authors":"Yiwei Fang, I. Hasan, Bill Francis, Haizhi Wang","doi":"10.2139/ssrn.1803445","DOIUrl":"https://doi.org/10.2139/ssrn.1803445","url":null,"abstract":"This paper examines the effects of strategic alliances on non-financial firms’ bank loan financing. We construct several measures to capture firms’ alliance activities using the frequency of alliance activities, the prominence of the alliance partner and the relative networking position in the overall alliance network. We find that firms with active alliance involvement experience a lower cost of debt from banks. We also document that allying with a prestigious partner (ie S&P 500 firms) can provide an endorsement effect and benefit the borrowers by reducing the price of bank loans. Moreover, a borrowing firm positioned at the centre of an alliance network enjoys a lower cost of bank loans. Finally, we find that borrowing firms with alliance experience are less likely to use collateral and covenants in their loan contracts.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"20 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122713030","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we develop a measure of aggregate dividends (net payout) and a corresponding valuation ratio that incorporate the economic restrictions that all outstanding equity should be held by investors. Using this market clearing based aggregate measure of payouts changes the traditional views on the sources of asset price variation; with the aggregate dividend measure, a lot of the asset price variation is due to predictability of payout growth. In addition, the new aggregate payout measure is naturally cointegrated with aggregate consumption. We develop a long-run risks based economic model that incorporates this restriction. We show that the model can account for the return and payout growth predictability needed to explain the asset price variation in conjunction with the risk premium and volatility puzzles.
{"title":"The Asset Pricing-Macro Nexus and Return-Cash Flow Predictability","authors":"Ravi Bansal, Yaron A. A.","doi":"10.2139/ssrn.1786144","DOIUrl":"https://doi.org/10.2139/ssrn.1786144","url":null,"abstract":"In this paper we develop a measure of aggregate dividends (net payout) and a corresponding valuation ratio that incorporate the economic restrictions that all outstanding equity should be held by investors. Using this market clearing based aggregate measure of payouts changes the traditional views on the sources of asset price variation; with the aggregate dividend measure, a lot of the asset price variation is due to predictability of payout growth. In addition, the new aggregate payout measure is naturally cointegrated with aggregate consumption. We develop a long-run risks based economic model that incorporates this restriction. We show that the model can account for the return and payout growth predictability needed to explain the asset price variation in conjunction with the risk premium and volatility puzzles.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"62 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125059707","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The recent global financial crisis contributes for recognizing the importance of corporate governance mechanisms in the banking industry. Although mixed evidence is associated with the role of board of directors in non-financial industries, a few analyses have been made of the relation between board composition and firm performance of the banking industry in several OECD countries. This paper examines the relation between board size and composition and firm performance and its relations with financial systems and maintenance of foreign branches for a banking industry during 2006-2009. We find that banking firms with larger boards underperform their peers in terms of Tobin’s Q and that no significant relation between the proportion of outside directors on the board and Tobin’s Q. We also argue that banks with taxpayer money and foreign branches would make a larger board more desirable for these firms because they face the requirement of improving management. After accounting for these unique features of Japanese banks, we find that board structures of Japanese banking industry are well performed only in banks with taxpayer money. In addition, Tobin’s Q is negatively correlated with board size in banks with foreign branches. This finding suggests that the board structures of bank with foreign branches might be the causes of agency problem. Our findings imply that board structures of Japanese banking remains for the improvement and that a greater need for efforts on the part of the banking sector to change and improve their board structures.
{"title":"Corporate Board Structures and Performance in the Banking Industry: Evidence from Japan","authors":"H. Sakawa, Naoki Watanabel","doi":"10.2139/ssrn.1786200","DOIUrl":"https://doi.org/10.2139/ssrn.1786200","url":null,"abstract":"The recent global financial crisis contributes for recognizing the importance of corporate governance mechanisms in the banking industry. Although mixed evidence is associated with the role of board of directors in non-financial industries, a few analyses have been made of the relation between board composition and firm performance of the banking industry in several OECD countries. This paper examines the relation between board size and composition and firm performance and its relations with financial systems and maintenance of foreign branches for a banking industry during 2006-2009. We find that banking firms with larger boards underperform their peers in terms of Tobin’s Q and that no significant relation between the proportion of outside directors on the board and Tobin’s Q. We also argue that banks with taxpayer money and foreign branches would make a larger board more desirable for these firms because they face the requirement of improving management. After accounting for these unique features of Japanese banks, we find that board structures of Japanese banking industry are well performed only in banks with taxpayer money. In addition, Tobin’s Q is negatively correlated with board size in banks with foreign branches. This finding suggests that the board structures of bank with foreign branches might be the causes of agency problem. Our findings imply that board structures of Japanese banking remains for the improvement and that a greater need for efforts on the part of the banking sector to change and improve their board structures.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"228 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115086670","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine how severity of financial constraints influences firms' choices of accounting policies. This paper shows that firms with mild financial constraints choose an aggressive accounting policy and those with severe financial constraints choose a conservative accounting policy.
{"title":"Optimal Accounting Policies Under Financial Constraints: Aggressive Versus Conservative","authors":"Masatomo Akita, Y. Osaki","doi":"10.2139/ssrn.1782602","DOIUrl":"https://doi.org/10.2139/ssrn.1782602","url":null,"abstract":"We examine how severity of financial constraints influences firms' choices of accounting policies. This paper shows that firms with mild financial constraints choose an aggressive accounting policy and those with severe financial constraints choose a conservative accounting policy.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"39 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123239027","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Dividends, particularly of acquired banks are influenced by several structural adjustments especially after mergers. The paper evaluates the various factors affecting dividend of both acquired and non-acquired banks. Using data from 120 large mergers and acquisitions in Europe, the study finds that while the levels of liquidity, risk, composition of the financial structure are pertinent factors in the dividend policy of banks, the price earning (PE) ratio is specifically fundamental to non-acquired banks. The significance of the variable in the non-acquired banks indicates that growth in bank investments and future projects exert more aggressive impact on banks that are not acquired or less likely to merge. This finding is novel as previous studies on dividend policy do not make this distinction.
{"title":"Multivariate Analyses of Factors Affecting Dividend Policy of Acquired European Banks","authors":"M. Nnadi, S. Tanna","doi":"10.2139/ssrn.1779510","DOIUrl":"https://doi.org/10.2139/ssrn.1779510","url":null,"abstract":"Dividends, particularly of acquired banks are influenced by several structural adjustments especially after mergers. The paper evaluates the various factors affecting dividend of both acquired and non-acquired banks. Using data from 120 large mergers and acquisitions in Europe, the study finds that while the levels of liquidity, risk, composition of the financial structure are pertinent factors in the dividend policy of banks, the price earning (PE) ratio is specifically fundamental to non-acquired banks. The significance of the variable in the non-acquired banks indicates that growth in bank investments and future projects exert more aggressive impact on banks that are not acquired or less likely to merge. This finding is novel as previous studies on dividend policy do not make this distinction.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126323600","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
•Natural disasters are major causes of uncertainty. Based on traditional international business and finance theories, we re-examine the relationship between risk and internationalization. We find evidence that diversification helps reduce risk. •We introduce natural disasters to mainstream international finance as a risk factor and show several important findings: firms hoard cash after a natural disaster. Unlike their domestic counterparts, MNCs increase their cash holdings to a lower degree when faced with a disaster. The effect of disaster damage is persistent over time. Finally, disaster damage is not relevant in poor countries. •Firms appear to have a rational reaction to disasters: corporate cash levels are lower in countries with high insurance consumption. Firms hold more cash in countries with greater exposure to natural disasters, but they tend to lower cash holdings in countries with good disaster preparedness programs and/or high insurance consumption. •Our results have important implications for policy makers and academics. Cash hoarding after a disaster, while rational at the firm level could be detrimental for economic recovery. Our study suggests tools for policy makers to control it.
{"title":"Risk and the Multinational Corporation Revisited: The Case of Natural Disasters and Corporate Cash Holdings","authors":"A. Ramirez, N. Altay","doi":"10.2139/ssrn.1772969","DOIUrl":"https://doi.org/10.2139/ssrn.1772969","url":null,"abstract":"•Natural disasters are major causes of uncertainty. Based on traditional international business and finance theories, we re-examine the relationship between risk and internationalization. We find evidence that diversification helps reduce risk. •We introduce natural disasters to mainstream international finance as a risk factor and show several important findings: firms hoard cash after a natural disaster. Unlike their domestic counterparts, MNCs increase their cash holdings to a lower degree when faced with a disaster. The effect of disaster damage is persistent over time. Finally, disaster damage is not relevant in poor countries. •Firms appear to have a rational reaction to disasters: corporate cash levels are lower in countries with high insurance consumption. Firms hold more cash in countries with greater exposure to natural disasters, but they tend to lower cash holdings in countries with good disaster preparedness programs and/or high insurance consumption. •Our results have important implications for policy makers and academics. Cash hoarding after a disaster, while rational at the firm level could be detrimental for economic recovery. Our study suggests tools for policy makers to control it.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115739878","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2011-02-28DOI: 10.1111/j.1467-9442.2010.01636.x
Tobias Wenzel
This paper studies shopping hour decisions by retail chains and independent competitors. We use a Salop-type model where retailers compete in prices and shopping hours. Our results depend significantly on efficiency differences between retail chain and independent retailer. If the efficiency difference is small, the independent retailer may choose longer shopping hours than the retail chain and may gain from deregulation at the expense of the retail chain. The opposite result emerges when the efficiency difference is large. Then, the retail chain may benefit whereas the independent retailer loses from deregulation.
{"title":"Deregulation of Shopping Hours: The Impact on Independent Retailers and Chain Stores","authors":"Tobias Wenzel","doi":"10.1111/j.1467-9442.2010.01636.x","DOIUrl":"https://doi.org/10.1111/j.1467-9442.2010.01636.x","url":null,"abstract":"This paper studies shopping hour decisions by retail chains and independent competitors. We use a Salop-type model where retailers compete in prices and shopping hours. Our results depend significantly on efficiency differences between retail chain and independent retailer. If the efficiency difference is small, the independent retailer may choose longer shopping hours than the retail chain and may gain from deregulation at the expense of the retail chain. The opposite result emerges when the efficiency difference is large. Then, the retail chain may benefit whereas the independent retailer loses from deregulation.","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123710600","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper studies the excess returns on stocks, associated to various company fundamentals on a panel of US stocks from 1979 to 2008. The returns premia are measured using a random coefficient panel data model on the individual stock level. We show that the HML and SMB factors in the Fama and French model probably have no particular economic meaning as sources of systematic risk other than being proxies for the impact of the book-to-price and size characteristics. While the book-to-price ratio, market capitalization, past year sales growth and the share of reinvested profits generate significant premia, earnings history and forecasts are of little predictive power. We statistically confirm the time-varying nature of the style premia but find no strong evidence for the value and growth momentum in a multivariate setting when the systematic risk is controlled for. Some of the premia are positively correlated with the market return and between each other, while others seem to be unrelated. Variations in premia associated with companies’ high internal growth and growth of sales are positively correlated between each other, with the market return and with the value premium. Variations of the size
{"title":"Returns Premia on Company Fundamentals","authors":"K. Shapovalova, A. Subbotin, T. Chauveau","doi":"10.2139/ssrn.1770744","DOIUrl":"https://doi.org/10.2139/ssrn.1770744","url":null,"abstract":"This paper studies the excess returns on stocks, associated to various company fundamentals on a panel of US stocks from 1979 to 2008. The returns premia are measured using a random coefficient panel data model on the individual stock level. We show that the HML and SMB factors in the Fama and French model probably have no particular economic meaning as sources of systematic risk other than being proxies for the impact of the book-to-price and size characteristics. While the book-to-price ratio, market capitalization, past year sales growth and the share of reinvested profits generate significant premia, earnings history and forecasts are of little predictive power. We statistically confirm the time-varying nature of the style premia but find no strong evidence for the value and growth momentum in a multivariate setting when the systematic risk is controlled for. Some of the premia are positively correlated with the market return and between each other, while others seem to be unrelated. Variations in premia associated with companies’ high internal growth and growth of sales are positively correlated between each other, with the market return and with the value premium. Variations of the size","PeriodicalId":340291,"journal":{"name":"ERN: Intertemporal Firm Choice & Growth","volume":"43 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2011-02-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128894690","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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